Moneysupermarket.com editor Clare Francis chats with mortgage expert Louise Cuming about the current state of the mortgage market and what options are available to you...
Video Transcript
Clare Francis: There seems to be no let up in the stream of bad news for borrowers at the moment. Even though interest rates have remained unchanged since April, mortgage rates are still rising and the spectre of negative equity is raising its head again as property prices continue to fall, and many of those who are trying to move home are struggling to sell because of the nervousness that pervades the market and the fact that mortgages are harder to come by.
I'm with Louise Cuming today whose head of mortgage services at moneysupermarket.com, just to talk about whether things really are as bad as they seem.
Q1: Hi, Louise. It really does seem to be one piece of bad news after another at the moment doesn't it? Over the last few weeks we've seen all the major lenders put their fixed rate mortgages up, and headlines stating that the era of cheap home loans is well and truly over. Is this really the case do you think?
Louise Cuming: Well I'd like to say there was a glimmer of hope but at the moment it really does seem to be all doom and gloom and there doesn't seem to be an awful lot of light at the end of the tunnel.
Even this week we've seen lenders ING, Bristol & West they've put their rates up, Halifax put their rates up last week, so it does seem to be a week by week occurrence, and unfortunately rates are always nudging up.
Q2: Why are mortgage rates still rising, because obviously Bank rate has remained unchanged at 5% since April?
Louise Cuming: That's a really good question, and I think you can go back even further than that, in fact you can go back to December 2007 and since December there have been three rate reductions, and actually average cost of money over that same period has been going up. And that's simply because there isn't as much money about to lend.
Q3: And obviously over the recent weeks it's inflation that's been the big story isn't it, because obviously it's rising more quickly than people were expecting? So now the next move in interest rate is expected to be upwards rather than downwards which puts further pressure on mortgage rates doesn't it?
Louise Cuming: Against all this trend of really borrowers hurting, it seems as if the next move by the MPC is, as you rightly say, is to be up which will make matters even more difficult.
Q4: This is bad news for borrowers, particularly the hundreds of thousands who are coming off cheap fixed rates over the next few months. What advice are you giving people who are ringing up to enquire about remortgaging? Is it still worth doing or are higher rates and higher fees meaning that for some borrowers it might be better off them sticking with the current lender and moving onto their SVR (Standard Variable Rate)?
Louise Cuming: It's always a good idea to approach your current lender, not because of the SVR but because they often offer you a good deal to stay put. But although rates have nudged up and are certainly a lot more expensive than they were two years ago, they're still significantly lower than standard variable rates, which on average are about 7.5%. So if you can find a home for your particular circumstances it is always a much better idea to shop around than to stay on SVR.
Q5: What about the people who borrowed 100% or 95% plus? Because of the weakening housing market some of them may find that they haven't built up any equity in their home over the last few years. What options are available to them?
Louise Cuming: We are obviously approached by a percentage of customers who are in that situation, and those customers unfortunately at the moment have very little choice but to stay with their existing lender. The advice that they would get is to just grit your teeth, obviously if the payments are affordable you just need to hang on in there because values will go up in the long term.
If you're finding that affordability is difficult you must go and talk to the lender as soon as possible. And of course if you are in the fortunate position of being able to overpay, or fund some home improvements that will actually add to the value of the house, that's a very sensible move at the moment.
Q6: But it's not the end of the world is it for these people if they do have to move onto their lenders SVR, because obviously one advantage of being on the SVR is that they won't be tied in, so if they are able to make improvements to their home to boost the value a bit or the mortgage market improves and more products become available, they can remortgage and move onto another deal at any time, can't they?
Louise Cuming: That's a really good point, that SVR is completely flexible, so a) you'll be able to make as many repayments as you can afford, but b) when the market changes you'll be able to move to a better deal immediately.
Q7: So despite all the doom and gloom, people still don't need to panic - there are options available and if anybody needs to they can ring for help and advice?
Louise Cuming: From a housing market perspective we've seen similar circumstances back in the late 1980s and early 90s, and within a few years house prices started to go up again, so there's absolutely no doubt that will happen again - it's just that when you are in the middle of it, it can feel very painful!
Clare Francis: Thank you Louise, thanks very much.
